Experimental research on comprehensive income disclosure, valuation judgment of appraiser and earnings management recognition

Abstract

Purpose The purpose of this paper is to investigate appraisers’ practice ability and level at present in China, examine whether different comprehensive income disclosure models could lead to significant differences in the appraiser’s estimate of share price and the appraiser’s recognition ability of enterprise’s surplus management.

Design/methodology/approach Experimental method is the main methodology in this research. We design three disclosure modes of comprehensive income, with or without earnings management (two forms), forming 3 x 2 subject experiments to examine influences to the appraiser’s valuation judgment, and at the same time, whether it is possible for the appraiser to identify the corporate earnings management through the information in the statement, and determine whether transparent disclosure could reduce the stock price judgment upward bias brought about by the observed earnings management.

Findings The result shows that there is no significant difference between the effects of comprehensive income modes on valuation judgments. And detailed disclosure of comprehensive income and its components don’t significantly improve the transparency of earnings management. Qualitative survey provides evidences for the experiment conclusion. Furthermore, the appraisers’ competence has been assessed from the view of accounting information users and we have found the practice level of the appraiser in China has yet to be greatly improved.